Thursday, February 7, 2019

Corporate Rehabilitation in the Philippines and the Case of Hanjin


Following the passage of Republic Act (RA) No. 10142, or the Financial Rehabilitation and Insolvency Act of 2010 (FRIA), the Supreme Court promulgated the Financial Liquidation and Suspension of Payment Rules of Procedure for Insolvent Debtors in 2015 (A.M. No. 15-04-06-SC), or the FLSP Rules.

The FLSP Rules applies to corporations, partnerships and individuals. It governs the practice, pleading and procedure for all proceedings brought under the FRIA. Jurisdiction lies with the special commercial courts designated by the Supreme Court, whose orders are immediately executory, subject to Rule 5 which provides motion for reconsideration and petition for certiorari under Rule 65 of the Revised Rules of Court, as remedies of an aggrieved party.

The nature of proceedings under the FLSP Rules is in rem, or conclusive against all the world. They are categorized as follows: (1) rehabilitation (voluntary or involuntary) and (2) liquidation (voluntary or involuntary) for juridical debtors; and (1) suspension of payment and (2) liquidation (voluntary or involuntary) for individual debtors.

In the case of Hanjin Heavy Industries and Construction Philippines, known as HHIC Phil., based in Subic Bay Freeport Zone (SBFZ), it filed a voluntary petition for rehabilitation, not for liquidation. See https://www.gmanetwork.com/news/money/companies/680971/korean-shipbuilder-s-hanjin-philippines-files-for-rehab-amid-debt-burden/story/. Rehabilitation refers to restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated. (Sec. 4 [gg], FRIA)

HHIC Phil. may, however, convert its petition for voluntary rehabilitation into voluntary liquidation and file it before the same commercial court. (Sec. 3, Rule 2, FLSP Rules)

FRIA has been enacted (and FLSP Rules promulgated) as the State considers it its policy to “ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made with a view to ensure or maintain certainly and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilities a speedy and orderly liquidation of these debtor's assets and the settlement of their obligations.” (Sec. 2, FRIA)






   

Saturday, November 18, 2017

Philippine Supreme Court designates commercial courts as cybercrime courts

The Supreme Court has passed a resolution (Administrative Matter No. 03-03-03-SC) designating commercial courts (from the regional trial court branches) as cybercrime courts that will try and decide cases covered by Republic Act (RA) No. 10175, otherwise known as the "Cybercrime Prevention Act of 2012.″ 

According to the resolution, the cybercrime courts in a judicial region shall have territorial authority over the entire region where the regional trial court is located. Cybercrime cases must also be filed in the office of the clerk of court in the official station of the proper cybercrime court. 

The resolution was approved by the Supreme Court (en banc) on 15 November 2016. It was officially released by the Office of the Court Administrator (OCA) through OCA Circular No. 18-2017 on 17 January 2017. 

Tuesday, August 15, 2017

Renewal of CRTE and Imposition of Penalties: Doing Business in the Subic Bay Freeport Zone (SBFZ)

On 14 May 2015, the Subic Bay Metropolitan Authority (SBMA) approved Board Resolution No. 15-04-5389 (14 May 2015), otherwise known as the Guidelines for the Automatic Renewal of Registration of Subic Bay Freeport Enterprises. Its salient points are as follows:

"Pursuant to the SBMA’s annual business review of SBF[1] Locators/Enterprises, six (6) months prior to the expiration of CR/CRTE[2], the concerned BID[3] shall conduct a business review to ensure locator’s compliance with the existing policies, rules and regulations xxx” (Section V)
"All recommendations for suspension, revocation and cancellation of CR or CRTE shall be evaluated by the SDABI[4] xxx” (Section VI)
“xxx the SDABI xxx shall ensure that the violating or non-complying SBF Locator/Enterprise has been accorded full due process prior to recommending the same to the Chairman and Administrator xxx” (Section VI)

Related to this, the SBMA on 18 September 2008 approved Board Resolution No. 08-09-2606, on Procedures in the Imposition of Fines and Penalties, the relevant features of which are:  

Conduct of inspection with respondent’s[5] participation
Issuance of Inspection Report
Conduct of Technical Conference
Issuance of Notice of Violation (if respondent does not dispute) or Notice of Non-Resolution (if respondent disputes)
Submission of Position Paper, presentation of evidence
Issuance of Decision by Regulatory Head
Appeal to SBMA Board of Directors

(NB: My partner and I were privileged to examine and dissect the fine points and features of these SBMA resolutions in some actual legal cases.)  





[1] Subic Bay Freeport
[2] Certificate of Registration/ Certificate of Registration
[3] Business and Investment Department
[4] Senior Deputy Administrator for Business and Investment
[5] Locator/Investor

Monday, July 3, 2017

The Subic Bay Metropolitan Authority (SBMA) leadership conundrum

Much has been discussed in the mainstream and social media about the leadership row in the Subic Bay Freeport Zone (SBFZ). Both the Chairman, Martin Diño, and the Administrator, Atty. Wilma Eisma, have been appointed by the President.

Without wading into this highly-charged debate, let us trace the root of the leadership impasse.

In 1992, Republic Act (RA) No. 7227 was enacted, providing that:

“(d)    Chairman/Administrator. — The President shall appoint a professional manager as administrator of the Subic Authority with a compensation to be determined by the Board subject to the approval of the Secretary of Budget, who shall be the ex officio chairman of the Board and who shall serve as the chief executive officer of the Subic Authority: provided, however, that for the first year of its operations from the effectivity of this Act, the mayor of the City of Olongapo shall be appointed as the chairman and chief executive officer of the Subic Authority.” (Section 13)

The law’s Implementing Rules and Regulations (IRR), promulgated immediately thereafter, carries the same language, to wit:

“(d) Chairman/Administrator - The president shall appoint a professional manager as administrator of the Subic Authority with a compensation to be determined by the Board subject to the approval of the Secretary of Budget, who shall be the ex officio chairman of the Board and who shall serve as the chief executive officer of the Subic Authority: Provided, however, That for the first year of its operation from the effectivity of this Act, the mayor of the City of Olongapo shall be appointed as the chairman and chief executive officer of the Subic Authority.” (Section 13)

For 12 years, there was only one Chairman and Administrator in SBMA, until then President Gloria Arroyo issued Executive Order (EO) No. 340 in 2004, splitting the position and separating and delineating the respective powers and functions of Chairman and Administrator. 

Noticeably, EO 340 states that the Chairman is the head of the agency, to wit:

“The SBMA Chairman shall be the head of the agency and as such, shall have the following powers, functions and duties:
a. To preside at all meetings of the SBMA Board;
b. To ensure that all policies, directives, plans and programs formulated by the SBMA Board are faithfully carried out by the Administrator as Chief Executive Officer of the SBMA; and
c. To exercise such powers and perform such functions and duties as the President may direct, or as may be assigned to him by the SBMA Board.” (Section 2)
On the other hand, EO 340 also provides, that:

“The Administrator, who shall be the Chief Executive Officer of the SBMA, shall have the following powers, functions and duties:
a. To execute, administer and implement the policies and measures approved and adopted by the SBMA Board;
b. To directly administer and supervise the operations and day-to-day business activities of the SBMA;
c. To represent the SBMA in all dealings with offices, agencies and instrumentalities of the Government and with all persons and entities, public or private, domestic or foreign, unless otherwise directed by the President or by the SBMA Board;
d. To execute, on behalf of the SBMA, all contracts, agreements and other instruments affecting the interests of the SBMA duly approved by the SBMA Board;
e. To direct and supervise the preparation of the agenda for the meetings of the SBMA Board;
f. To preside at the meetings of the SBMA Board in the absence of the Chairman; and
g. To exercise such other powers, functions and duties as may be provided in the By-Laws and as may directed by the President or assigned to him by the SBMA Board.” (Section 3)
Thus, there is now the head of agency in the person of the Chairman, and the CEO who is no other than the Administrator.

But can the President issue an executive act of this nature? The consolidated cases of Lokin vs. Comelec, et. al. (GR Nos. 179431-32; 180443) resolved by the Supreme Court (en banc), is instructive. In this case the high court reiterated the long-established rule, hence: “It is axiomatic that the clear letter of the law is controlling and cannot be amended by a mere administrative rule issued for its implementation. Indeed, administrative or executive acts shall be valid only when they are not contrary to the laws or the Constitution.”

Whether or not EO 340 is consistent with RA 7227 is the main question then. 

The current situation also invites other important legal concerns, such as the scope and breadth of the definition of “head of agency” and the application of the doctrine of operative fact.

In the final analysis, only the President can dispense a just and mutually acceptable resolution on this festering dispute between the contending parties. Because the courts may not be so kind. Dura lex sed lex. In the meantime, SBFZ investors and residents, and SBMA employees, can only wait and watch with bated breath. 

Friday, September 23, 2016

Impeaching a witness by prior conviction, or how valuable are Colanggo, et. al.’s testimonies in a court of law?

In the middle of the ongoing congressional investigation on the alleged illegal drugs trade in the New Bilibid Prison (NBP), a parade of convicts animatedly testified on the supposed involvement of several top-ranked government officials, including a seating senator of the land.

But what is the probative value of such testimonies as evidence?

In Section 11, Rule 132 of the Rules of Court lies the answer:


The Supreme Court, in the case of People of the Philippines vs. Francisco Nanas, alias Ikot (G.R. No. 137299, 21 August 2001), explains said Rule, thus:

“It is true that under the Rules of Court, a witness may be impeached by evidence that his general reputation for truth, honesty, or integrity is bad. However, a witness cannot be impeached by evidence of particular wrongful acts unless there is a showing of previous conviction by final judgment, such that not even the existence of a pending information may be shown to impeach him. In the present case, there was no testimony that the reputation of Beatisola for truth, honesty or integrity is bad. The defense merely presented evidence of the witness’ alleged previous wrongful acts by the introduction into evidence of criminal complaints filed by police officers and offended parties against the witness before the municipal trial court. There is no showing that these cases were eventually tried and that Beatisola was convicted thereof.” 

Wednesday, November 4, 2015

Cellphone and warrantless search in the Philippines

May the police, without a warrant, search digital information on a cell phone seized from an individual who has been arrested? This issue has been resolved in the seminal US Supreme Court case of Riley vs. California (No. 13-132 [25 June 2014]). Ruling in the negative, the US Supreme Court declares, thus:

“We cannot deny that our decision today will have an impact on the ability of law enforcement to combat crime. Cell phones have become important tools in facilitating coordination and communication among members of criminal enterprises, and can provide valuable incriminating information about dangerous criminals. Privacy comes at a cost.

Our holding, of course, is not that the information on a cell phone is immune from search; it is instead that a warrant is generally required before such a search, even when a cell phone is seized incident to arrest. Our cases have historically recognized that the warrant requirement is “an important working part of our machinery of government,” not merely “an inconvenience to be somehow ‘weighed’ against the claims of police efficiency.” Coolidge v. New Hampshire, 403 U. S. 443, 481 (1971). Recent technological advances similar to those discussed here have, in addition, made the process of obtaining a warrant itself more efficient. See McNeely, 569 U. S., at ___ (slip op., at 11–12); id., at ___ (ROBERTS, C. J., concurring in part and dissenting in part) (slip op., at 8) (describing jurisdiction where “police officers can e-mail warrant requests to judges’ iPads [and] judges have signed such warrants and e-mailed them back to officers in less than 15 minutes”).

Moreover, even though the search incident to arrest exception does not apply to cell phones, other case-specific exceptions may still justify a warrantless search of a particular phone. “One well -recognized exception applies when ‘“the exigencies of the situation” make the needs of law enforcement so compelling that [a] warrantless search is objectively reasonable under the Fourth Amendment.’” Kentucky v. King, 563 U. S., at ___ (slip op., at 6) (quoting Mincey v. Arizona, 437 U. S. 385, 394 (1978)). Such exigencies could include the need to prevent the imminent destruction of evidence in individual cases, to pursue a fleeing suspect, and to assist persons who are seriously injured or are threatened with imminent injury. 563 U. S., at ___. In Chadwick, for example, the Court held that the exception for searches incident to arrest did not justify a search of the trunk at issue, but noted that “if officers have reason to believe that luggage contains some immediately dangerous instrumentality, such as explosives, it would be foolhardy to transport it to the station house without opening the luggage.” 433 U. S., at 15, n. 9.

In light of the availability of the exigent circumstances exception, there is no reason to believe that law enforcement officers will not be able to address some of the more extreme hypotheticals that have been suggested: a suspect texting an accomplice who, it is feared, is preparing to detonate a bomb, or a child abductor who may have information about the child’s location on his cell phone. The defendants here recognize—indeed, they stress—that such fact -specific threats may justify a warrantless search of cell phone data. See Reply Brief in No. 13–132, at 8–9; Brief for Respondent in No. 13–212, at 30, 41. The critical point is that, unlike the search incident to arrest exception, the exigent circumstances exception requires a court to examine whether an emergency justified a warrantless search in each particular case. See McNeely, supra, at ___

Our cases have recognized that the Fourth Amendment was the founding generation’s response to the reviled “general warrants” and “writs of assistance” of the colonial era, which allowed British officers to rummage through homes in an unrestrained search for evidence of criminal activity. Opposition to such searches was in fact one of the driving forces behind the Revolution itself. In 1761, the patriot James Otis delivered a speech in Boston denouncing the use of writs of assistance. A young John Adams was there, and he would later write that “[e]very man of a crowded audience appeared to me to go away, as I did, ready to take arms against writs of assistance.” 10 Works of John Adams 247–248 (C. Adams ed. 1856). According to Adams, Otis’s speech was “the first scene of the first act of opposition to the arbitrary claims of Great Britain. Then and there the child Independence was born.” Id., at 248 (quoted in Boyd v. United States, 116 U. S. 616, 625 (1886).

Modern cell phones are not just another technological convenience. With all they contain and all they may reveal, they hold for many Americans “the privacies of life,” Boyd, supra, at 630. The fact that technology now allows an individual to carry such information in his hand does not make the information any less worthy of the protection for which the Founders fought. Our answer to the question of what police must do before searching a cell phone seized incident to an arrest is accordingly simple— get a warrant.

We reverse the judgment of the California Court of Appeal in No. 13–132 and remand the case for further proceedings not inconsistent with this opinion. We affirm the judgment of the First Circuit in No. 13–212.

It is so ordered.” (Emphasis supplied)

It is modestly opined that the United States of America case law, particularly on the right to privacy and against unreasonable searches and seizures, pervades Philippine jurisprudence. In fact, former Chief Justice Reynato Puno discussed the subject matter in his separate opinion in the landmark case of Republic of the Philippines v. Sandiganbayan, et. al. (GR No. 104768 [2003]). 

Quoting US jurisprudence, Chief Justice Puno stated that the “exclusionary rule” had been incorporated in the state system the US because other means of controlling illegal police behavior had failed. He quoted at length significant US rulings, asserting that they had a significant influence in the exclusionary rule in Philippine jurisdiction:

“. . . Today we once again examine the Wolf’s constitutional documentation of the right of privacy free from unreasonable state intrusion, and after its dozen years on our books, are led by it to close the only courtroom door remaining open to evidence secured by official lawlessness in flagrant abuse of that basic right, reserved to all persons as a specific guarantee against that very same unlawful conduct. . .

… Therefore, in extending the substantive protections of due process to all constitutionally unreasonable searches - state or federal - it was logically and constitutionally necessary that the exclusion doctrine  - an essential part of the right to privacy - be also insisted upon as an essential ingredient of the right newly recognized by the Wolf case.  In short, the admission of the new constitutional right by Wolf could not consistently tolerate denial of its most important constitutional privilege, namely, the exclusion of the evidence which an accused had been forced to give by reason of the unlawful seizure.  To hold otherwise is to grant the right but in reality to withhold its privilege and enjoyment.  Only last year the Court itself recognized that the purpose of the exclusionary rule ‘is to deter - to compel respect for the constitutional guaranty in the only available way - by removing the incentive to disregard it.’ (Elkins v. United States, 364 US at 217)

Wednesday, April 22, 2015

The Arias doctrine: another wrong that should be corrected

While the Supreme Court is now seriously considering the scrapping of the old condonation doctrine or the Aguinaldo doctrine, I suggest it also look into and revisit the other twin of the “dodging corruption cases” mantra repeatedly abused and misused by heads of government offices and agencies, the Arias doctrine.

In Arias vs. Sandiganbayan, the Supreme Court in 1989 declared: "We would be setting a bad precedent if a head of office plagued by all too common problems— dishonest or negligent subordinates, overwork, multiple assignments or positions, or plain incompetence—is suddenly swept into a conspiracy conviction simply because he did not personally examine every single detail, painstakingly trace every step from inception, and investigate the motives of every person involved in a transaction before affixing his signature as the final approving authority. "x x x x "x x x. All heads of offices have to rely to a reasonable extent on their subordinates and on the good faith of those who prepare bids, purchase supplies, or enter into negotiations. x x x. There has to be some added reason why he should examine each voucher in such detail. Any executive head of even small government agencies or commissions can attest to the volume of papers that must be signed. There are hundreds of documents, letters, memoranda, vouchers, and supporting papers that routinely pass through his hands. The number in bigger offices or department is even more appalling."

The Arias doctrine has been abused to the hilt by heads of government offices, both appointed and elected, going by the number of corruption cases dismissed by the courts owing to its invocation. These, regardless of whether or not said heads of agencies were the ultimate and prime beneficiaries of the assailed transactions, especially when "added reason" or "unusual fact" could not be established by the prosecution.  

However, it is a not a secret that under the padrino system (kamag-anak, kaklase, kaibigan) prevailing in the bureaucracy, heads of agencies appoint to juicy and key positions only those persons who fall in the 3K category. These are subordinates who usually control the budget and finance; they will not act or do anything, especially those involving the use of public funds, without the bidding and/or imprimatur of their bosses. And so the boss always knows.

At the very least, the doctrine tolerates and even encourages incompetence and buck passing, instead of encouraging competent, upright and responsible leaders. In this manner, the Arias doctrine is sadly and unfortunately turned on its head.